Consumer credit growth slowed in June after Bank of England officials took action to eliminate risks from the boom in lending on credit cards and other household loans.

Last month the central bank called on lenders to prove that the jump in consumer credit is not excessively risky, giving them two months to examine underwriting standards and report back with their findings.

The Prudential Regulation Authority (PRA) will use this information to decide if any further steps need to be taken to rein in such lending.

Berenberg noted that some banks’ underwriting fails to consider borrowers’ total debt while lending to lower-quality borrowers has increased.

“These weaknesses do not necessarily apply to Lloyds but do illustrate the exuberant conditions in UK consumer credit markets,” the broker said.

Berenberg cuts 2017 EPS estimate on Lloyds on conduct costs

The analyst also cut its estimate for 2017 earnings per share by 8% after Lloyds announced an extra £1bn provision for conduct charges in the first half, mainly related to its payment protection insurance (PPI) mis-selling scandal.

“Our greater concern relates to new conduct issues, such as mortgage arrears in Q217 and the handling of customers that were mistreated by HBOS,” Berenberg said.

“While less financially significant, we are concerned that cases such as these lead to meaningful ongoing conduct costs.”

In its first half results last month, Lloyds said it has set aside £283mln to repay 590,000 mortgage customers mistakenly charged from 2009 to 2016 after going into arrears.

The lender also said it is still reviewing compensation claims for the victims of the HBOS Reading fraud, which involved siphoning off money from struggling businesses.

Lloyds earmarked £100mln in the first quarter for the case.

Lloyds is overvalued, Berenberg says

Berenberg also believes consensus forecasts for loan losses remain are too low and market estimates for earnings are too high.

“Lloyds is overvalued, particularly given skewed risks to earnings,” the analyst said.

“Despite its attractive dividend yield, Lloyds tangible value order has fallen to a three-year low.”

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